Accounting Chapter 1 BMCC

Accounting- Accounting- is the information system that measures business activities, processes the information into reports & communicates the results to decision makers.

Financial Accounting- provides information for external decision makers, such as outside investors, lenders, customers and the federal government federal govemrent. Providing information for external decision makers External decisions makers: Should I invest in the business? Is the business profitable? Should we lend money to the business? Can the business pay us back?

(The Cost Principle)-states that accused assets & services should be recorded at their actual cost(also called historical costs). The cost principles means we recorded a transaction at the amount shown on the receipt0 the actual amount paid. Example- assume our fictitious company Smart Touch learning purchased land for $20,000. The business might believed the land is instead worth $25,000.

The cost principle requires that Smart touch learning record the land at $20,00 not 25,000 The cost principle also holds that the accounting records should continue reporting the historical cost of an assets over its useful life.

Accounting Equation-the basic tool of accounting, measuring the resources of the business( what the business owns or has control of) and the claims to those resources(what the business owes to creditors and to the owners) Assests=Liabilties+ Equity

Asset- Economic resource that is expected to benefit the business in the future. Assets are something the value that the business own or has control of. Cash, merchandise, inventory, furniture and land are examples of assets.

- Accounts Receivable

Liabilties- Debts that are owed to creditors. Liabilities are debts that are owned to creditors. Liabilities are something the business owes and represent the creditors claims on the business assets. -For example- a creditor who has loaned money to a business has a claim to some of the business assets until the business pay the debit. -Many liabitlies have to word payable in their titles. Examples include accounts payable, notes payable and salaries payable.

- Accounts Payable

Equity-The owners claims to the assets of the business are called equity(also called owners equity) Equity represents the amount of assets that are left over after the company has paid its liabilities. It is the company's net worth. Owners Capital- owners contribution to a business. And owner can contribute cash or other assets (such as equipment) to the business and receive capital.

Revenues- are earnings that results from delivering goods or services to customers. Examples of revenues are sales revenue, service revenue & rent rent revenue.

Expenses- are the cost of selling goods or services. Expenses are the opposite of revenues, and therefore decrease equity. Examples of expenses are rent expense, salaries expense, advertising expense & utilities expense.

Owners withdrawals-payments of equity to the owners( also called drawings.

Withdrawals can be paid in the form of cash or other assets and are not expenses. An owner may or may not makes withdrawals from the business.

Accounts Payable(Example 3)-The liability created by purchasing on account is an accounts payable, which is a short term liability that will be paid in the future. A payable is always a liability.

Supplies is an asset not an expense

Accounts Receivable-The right to receive cash in the future from customers for goods sold or for services performed. Smart touch learning performs a service for clients who do not pay immediately. The business receives the clients promise to pay $3,000 within one month. This promise is an asset, an accounts receivable, because the business expects to collect the cash in the future. - -In accounting, we say that Smart touch learning performed this service on account. It is in performing the service (doing the work) not collecting the cash, the company earns the revenue.